How bad credit can affect your job search

Money missteps can hurt your job prospects, but not all mistakes weigh the same

If you're looking to make a career change, you may think the tight job market is the biggest obstacle to securing your dream job. Yet for many Americans whose credit has taken a hit in the recession, a blemished credit report may be a bigger problem as companies increasingly use credit reports as a method of vetting potential candidates.

"Companies seem to be checking credit reports more as they feel this is more reliable then checking references," says Timothy A. Wilson, founder of T.A. Wilson & Associates, a Northborough, Mass.-based human resources consulting firm. Indeed, 60 percent of employers surveyed in 2009 by the Alexandria, Va.-based Society for Human Resource Management (SHRM) said they conduct credit checks of prospective employees, up from 42 percent in 2006.

What information are they hoping to gain? Good credit can indicate a level of responsibility that's desirable in employees. It can also give employers an idea of whether they can trust an employee around money. "Some employers think that someone with bad credit would be more likely to steal," says Donna M. Ballman, an employment attorney based in Fort Lauderdale, Fla. But with an unemployment rate of nearly 10 percent, the number of people who've experienced financial difficulties has risen dramatically and, "if you have bad credit today, it just means you're living in this decade," Ballman adds.

Every negative infraction on a credit report doesn't carry the same weight with employers. Here is a breakdown on how negative credit report items and how often they impact employers' hiring decisions.

Varying costs of bad creditCredit checks weigh more heavily in hiring decisions for certain types of jobs, such as those with financial responsibility. So employers may be less willing to hire someone with bad credit in an accounting or payroll department "because they feel you might be a risk of embezzlement," says Wilson. Other types of jobs in which a credit report may factor heavily include senior executive positions, and positions in which candidates would have access to confidential employee information such as salary, benefits and medical information, SHRM reports.

Every negative infraction on a credit report doesn't carry the same weight. According to the SHRM survey, 64 percent of firms said outstanding judgments such as lawsuits filed in court were most likely to affect their hiring decisions. Next in line were accounts in debt collection, with 49 percent of respondents saying such accounts would weigh negatively on a candidate's job prospects. Comparatively speaking, 18 percent said a high debt-to-income ratio would impact their hiring decision negatively, 11 percent said a foreclosure would keep them from hiring an employee and only 1 percent would look negatively upon medical debt.

An important note for job seekers who've declared bankruptcy: Employers are prohibited by law from refusing to hire someone based solely on a bankruptcy, though they could point to factors that led to the bankruptcy, such as unpaid debts, says Ballman.

The applicant's rightsWhile employers are legally allowed to perform credit checks under the Fair Credit Reporting Act, they can't do so without your permission. "They have to inform you that someone is going to be conducting a credit check, and they have to get your permission in writing," says Ballman. You can obviously refuse, but that may take you out of the running for the job, Wilson warns.

The good news is most employers won't bother running a credit report until they're impressed enough with you to offer you a job, so perhaps a better way to handle a blemished credit report would be to explain to prospective employers why your credit has taken a hit. "Paint your own picture rather than have them see the foreclosure or bankruptcy and form their own opinions," says Geoff Williams, co-author of "Living Well with Bad Credit." Wilson agrees, saying the point at which you sign the form authorizing the credit check might be the ideal time to bring up problems with your credit.

If a manager really wants someone for the job, their support can overrule a problem credit report.

-- Timothy A. Wilson
founder, T.A. Wilson & Associates

If an employer refuses to hire you based on your credit, he or she must issue a "pre-adverse action disclosure," which basically includes a copy of the credit report that was used to make the decision, along with a summary of your rights under the Fair Credit Reporting Act. After the adverse action is taken, the employer must give you contact information for the credit bureau that provided the report so that you can dispute it if need be. Such actions likely won't help you get that current job, but at least you know what you're dealing with moving forward and you can get credit inaccuracies and blemishes cleaned up for the future.

Though many job seekers must deal with the employment credit check today, there are efforts being made to change that. "Approximately16 states have proposed laws outlawing credit checks for use in employment applications," says Ballman. "And in Hawaii and Washington State, it's already illegal to use credit information for hiring." There are also efforts on the federal level with Rep. Steve Cohen, a Democrat from Tennessee, authoring legislation to prohibit credit checks in the hiring process.

Though such legislation could help those with bad credit in the future, job hunters today should not feel intimidated because of their credit history and still put their best foot forward in job interviews and throughout the hiring process.

"If a manager really wants someone for the job, their support can overrule a problem credit report," says Wilson.

Published: April 19, 2010

Join the discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!